Home Credit inquiry How to improve your Cibil score using credit cards?

How to improve your Cibil score using credit cards?

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The CIBIL score or credit score of an individual plays an important role in the loan application process and hence it is necessary to maintain a good credit score.

A high score represents creditworthiness and can get better and faster loans, while a lower score makes the individual a risky borrower and can impact their chances of getting approved for a loan.

CIBIL scores depend on the credit history of the individual and the credit card can be used to increase the credit score.

Increase in credit card use

Credit cards are increasingly becoming a tool for achieving short-term financial goals. According to data released by the RBI for March 2022, credit card users spend an average of Rs 14,500 per month compared to Rs 700 per debit card per month.

Although the credit card has its advantages, it also has some disadvantages. For example, it is advisable to maintain a credit utilization rate of 30% of the credit card limit, as this would make the user appear to be credit hungry and negatively impact their CIBIL score. , Business Intern reported.

How to use the credit card to improve the score?

A user can use their credit card in several ways to get a good CIBIL score. Indeed, these cards are also a credit instrument and their judicious use can add to an individual’s exposure and credit mix. Here is an overview of some measures.

Choose wisely: It is better to choose a credit card that best suits the purchasing habits of the individual rather than opting for one with special offers. When banks offer special offers, they usually lead to a credit application, which will require the issuer to thoroughly investigate the individual’s CIBIL report. Difficult requests have a negative impact on the CIBIL score and lower it.

Pay your bills on time: The credit card issuer allows the individual to make payment for the minimum amount or the full amount due within a specific payment window. It is better to pay the entire credit card bill instead of the minimum amount to improve the CIBIL score. A person who pays off credit card bills in full will establish a regular repayment history which will significantly increase the CIBIL score.

Maintain old cards: As long as the person can pay the bills in full and on time, they can continue to use the old credit cards. Older cards give the individual a long and sold credit history which has a positive impact on the CIBIL score.

Don’t settle for just one shot: Sometimes, individuals approach banks for a watered-down deal to pay off their outstanding credit card. However, even if the banks accept such requests, these regulations have a negative impact on the credit score because they show that the individual has not paid his dues in full. If the person settles the outstanding amount with the credit card company, it is advisable to convert the status from “settled” to “closed”. To move to closed status, the individual and the credit card company would need to agree on a mutually agreeable amount for settlement.